China Considers Borrowing $1.4 Trillion to Revitalize Its Economy
China is considering approving a fiscal stimulus package that surpasses 10 trillion yuan (approximately $1.4 trillion) in the coming years to revitalize its weakening economy. Informed sources indicate that the National People's Congress (NPC) Standing Committee is expected to approve this financial strategy, which includes the issuance of 6 trillion yuan in special government bonds. This decision is planned to be made on the last day of the NPC meeting, which will take place from November 4 to November 8.
The 6 trillion yuan debt to be raised over a three-year period, including 2024, primarily aims to help local governments manage their off-the-books debt risks. The total amount raised through special treasury and local government bonds represents more than 8% of China's GDP. The world's second-largest economy has been grappling with a prolonged real estate sector crisis and increasing debts among local governments.
These stimulus package plans had become a topic of speculation in global markets following the central bank's announcement of its most significant aggressive monetary support measures since the onset of the COVID-19 pandemic at the end of September. The government had signaled additional fiscal stimulus, but had not yet disclosed financial details.
Sources who wished to remain anonymous due to the sensitive nature of the information indicated that the plans are not yet finalized and may be subject to changes. They also noted that the NPC, which usually meets every two months, has postponed its meeting from late October to early November. This timing coincides with the U.S. presidential election on November 5, providing China with the flexibility to adjust the financial package based on the election results.
The possibility of Donald Trump returning to the presidency could lead Beijing to intensify its stimulus response, as his election could pose economic challenges for China. Trump has recently taken the lead over his Democratic opponent, Vice President Kamala Harris, in polls and has proposed imposing a 60% tariff on Chinese imports.
Additionally, the NPC Standing Committee may approve the issuance of up to 4 trillion yuan in special purpose bonds for land and real estate purchases over the next five years. This would add to the annual issuance quota set at 3.9 trillion yuan for this year and 3.8 trillion yuan for 2023, financing infrastructure projects. This measure aims to enhance local governments' land management capabilities and alleviate liquidity and debt pressures on them and real estate developers.
If the NPC Standing Committee fully approves the bond issuances, the total stimulus could exceed 10 trillion yuan. This reflects Beijing's urgency to strengthen the economy, especially considering that China is estimated to issue 1 trillion yuan in government bonds for flood prevention infrastructure by the end of 2023 to meet its approximately 5% economic growth target.
However, the current fiscal spending still falls short compared to the 4 trillion yuan stimulus response provided by China in reaction to the 2008 global financial crisis, which represented 13% of its then GDP.
As part of broader fiscal efforts, other stimulus initiatives valued at least at 1 trillion yuan, such as capital injections into major state banks through consumption incentives and special treasury bonds, are also being considered.